What Small Businesses Can Learn From Hollywood

Originally published: 12.01.08 by
Guy Kawasaki

Successful industries respond early and appropriately to new technologies
and new ideas.

Scott
Kirsner spent the last three years immersed in the movie industry in order to
write a book called Inventing the Movies: Hollywood’s Epic Battle Between
Innovation and the Status Quo, from Thomas Edison to Steve Jobs.

He
talked with directors like Francis Ford Coppola and James Cameron, editors,
cinematographers, studio chiefs, producers, tech companies that sell technology
into Hollywood, and even actors with an interest in new technology like Morgan
Freeman.

He
discovered that Hollywood serves as a great case study for how any
longestablished, successful, and self-satisfied industry responds to new
technologies and new ideas.

Even
when a new idea seems to have obvious merit, and even when its inventor can
make a strong case for it, 95 percent of the people involved in the industry
fight the new idea with all their energy for as long as they possibly can until
they realize it has the potential to grow their business in surprising ways.

Case
in point: within a decade of Hollywood’s fight against the Betamax video
recorder, which went all the way to the Supreme Court, the studios were earning
more from home video business than they were from ticket sales.

Here
are five movies—all of which you’ve likely seen—that have an important
back-story that

innovators can learn from.

Sometimes technology needs to be just good enough, not perfect. “The Jazz
Singer” will forever be remembered as Hollywood’s first talkie — even though it
wasn’t among the first dozen to try to sync up the pictures on the screen with
a soundtrack. But the technology that Warner Brothers banked on, developed at
AT&T’s Bell Labs, was better than what came before it. It was just good
enough to turn “The Jazz Singer” into a hit—especially combined with a
performance from Al Jolson that practically leapt off the screen. The system
still relied on phonograph records that could scratch. If the film broke and
needed to be spliced back together, the entire movie would veer out of sync.
The Warner Bros/AT&T technology was just good enough to start the sound
revolution in Hollywood, though it didn’t endure for very long as a standard.
Five years after “The Jazz Singer”, even Warner Bros. had switched over to a
technology that more reliably linked the audio with the visuals.

Innovators never underestimate the importance of allies. Shot in
glorious Technicolor, “Gone with the Wind” won the Best Picture Oscar in 1939,
marking the start of Hollywood’s transition from black-and-white to color. But
Technicolor had been working on its technology for making color movies since
1915, developing new kinds of cameras and film processing techniques.

Like
most start-ups, the company nearly ran out of money several times, and had to
continually hunt for new investors and allies who’d make movies using
Technicolor’s technology to show how it was improving. These allies included
the swashbuckler Douglas Fairbanks and Walt Disney, who won one of his first
Oscars for a short cartoon made in Technicolor. Technicolor cofounder Herb
Kalmus met another key ally at the racetrack at Saratoga Springs: Jock Whitney,
a rich playboy who used his money to option a novel by Margaret Mitchell and
help turn it into a movie starring Clark Gable and Vivien Leigh.

Innovators spot market opportunities first, and chase them relentlessly.
Entrepreneur Andre Blay had no connection to Hollywood, but in the mid-1970s he
was among the first to realize that home video machines like Sony’s Betamax
(which sold for about $1,000 at the time) presented the potential for a new
business.

He
sent “cold call” letters to most of the major Hollywood studios asking them for
the right to sell their movies on videotape. Only one studio, 20th Century Fox,
consented, offering movies like “Butch Cassidy and the Sundance Kid”. Blay’s
first ad in “TV Guide” netted his company $140,000 in revenues, and within a
year, Fox acquired his company for $7.2 million in cash.

Innovators find collaborators who share their vision, and they’re
prepared for things to take longer than expected. Computer
graphics pioneer Ed Catmull, while he was still a graduate student at the
University of Utah, was one of the first people on the planet who believed that
it’d be possible to make a full-length computer-animated movie that people
actually would pay to see. As he marched toward that goal, he connected with
two people who bought into his vision: John Lasseter, an ex-Disney animator,
and Steve Jobs, who purchased the fledgling Pixar from George Lucas and helped develop
it into a company that could stand on its own two feet, selling hardware and
software while also pursuing Catmull’s ambitious, audacious goal.

Catmull
admits that he thought the goal of making Pixar’s first film would take a
decade—it took two. (While Disney’s legendary animators weren’t among those who
bought into Catmull’s vision early on, Disney the company eventually did,
buying Pixar in 2006 for $7.4 billion. Today, Catmull and Lasseter oversee all
of Disney’s animated movies like “Toy Story”.)

Innovators acknowledge that not everyone loves a revolution. After
Sony Electronics developed a new digital movie camera for George Lucas to use
on “Star Wars: Episode II — Attack of the Clones”, much of its introductory
marketing focused on how revolutionary the camera was, and how it would
simplify shooting. But most of the leading cinematographers in Hollywood were
already quite comfortable with the film cameras they used—they didn’t want
their work revolutionized, and Sony’s marketing strategy hit a brick wall.

“There
was a lot of hype and overpromising,” said Steven Poster, who was head of the
American Society of Cinematographers. “They’d say, ‘You don’t need lights, you
don’t need crews. This is just as good as film, if not better.’” That wasn’t a
message that resonated with Sony’s target audience, which already associated
digital cameras with low-cost, quick and-dirty TV production.

As
a small business owner, there are many lessons to learn about innovation from
the movies. If nothing else, it gives you a reason to go to a movie and deduct
the expense—maybe not “Beverly Hills Chihuahua” (even though I liked it), but
certainly “Flash of Genius”.

Guy Kawasaki is a managing director of Garage Technology Ventures, an early-stage venture capital firm and a columnist for Forbes.com. Previously, he was an Apple Fellow at Apple Computer Inc., where he was one of the individuals responsible for the success of the Macintosh computer. He is the author of eight books, including his most recent, The Art of the Start, which can be found at www.guykawasaki.com.

Articles by Guy Kawasaki

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